RRSP Contributions: Have You Topped Up?

Posted by Jennifer G. on Tue, Feb 18, 2014

rrsp-contributions-top-upYour Registered Retirement Savings Plan (RRSP) lets you keep more of your hard-earned money, but are you using RRSP contributions to the full extent? The deadline for 2013 contributions is quickly approaching so take this opportunity to top up your contributions.

Deadline For 2013 RRSP Contributions

Do you hear that ticking sound? The clock is winding down as the deadline to contribute to your RRSP approaches. Now that the holiday bills have been paid, you should be able to access some extra funds that weren’t available during the financial squeeze at the end of the year that we’re all used to. Every bit helps.

You still have time to contribute so there’s no need to panic, but don't wait too long. The deadline for 2013 contributions is March 3. While only about one-third of eligible Canadians put money into an RRSP each year, you can be one of the people who plans ahead to save smart with a tax-deferred RRSP.

Benefits of Contributing To Your RRSP

Maybe you're not familiar with how helpful an RRSP can be in the long run. Saving money seems like a pipe dream for families who are just trying to pay the bills, but putting money into an RRSP will allow you to live comfortably when retirement arrives.

The Royal Bank of Canada points out that taxpayers will pay less in taxes for the year in which they make a contribution. The contribution amount is deducted from your income, so topping up your contributions in years when you make more allows you to slide into a lower tax bracket.

RRSP contributions are investments that earn money over time. You're not required to pay taxes on the money these investments make until you withdraw from your RRSP account when you retire. This technique is one of the best ways for letting your money grow without the hit of taxes.

The bottom line is that topping up your RRSP contributions each year will save you thousands of dollars in taxes over your lifetime. You'll end up with a tidy sum waiting for you when you retire, so there's no reason not to contribute! As a note: the RRSP contribution maximum for the 2013 tax year is $23,820.

Using Your RRSP To Purchase a Home

First-time home buyers are even able to use their RRSP contributions to purchase a home. The Canadian Revenue Agency has established a Home Buyers' Plan that lets you take out up to $25,000 from your RRSP to pay for a home in one tax year. You will need to pay this money back, but you have 15 years to replenish the funds. Your RRSP account offers a source of funds for a down payment to help reduce the interest you pay on your home over time.

Tax planning takes some time, but the end result of planning ahead is more money in your bank account. Your RRSP is a lucrative investment tool offering tax-deferred savings options that let you keep more of your income in your pocket in the long run. Visit your local financial advisor for more details.

Photo credit: StockVault.net

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